Five Key Food Services Trends

Five key trends that will play out in the food services industry are being driven by the 'millennial' generation, which has significant demand for high quality, locally sourced food that can be pre-ordered before arriving at a restaurant or delivered at home. These are largely developed markets focused, with technology helping to drive change in the food services industry as convenience and efficient service remain key concerns.

1. Food Served The 'Right' Way

Menus at restaurants are adapting to changing consumer demand, as issues of healthy, locally grown, sustainably sourced food becomes of increased importance to how purchasing decisions are made. Food increasingly has to be grown, harvested, prepared and disposed of in the 'right' way, meeting demand for high quality. While we believe that this is currently a more significant factor in decision-making at the grocery shopping level, we expect this will become increasingly important for consumers of the food services sector over the coming years. This will particularly be the case for the 'millennial' generation, as they come to expect the standards they demand from the grocery sector at restaurants as well.

The 2016 edition of the Food & Health survey, conducted by the International Food Information Council Foundation, interviewed over 1,000 Americans between the ages of 18 and 80, found that factors such as Healthfulness and Sustainability ticked up in importance for consumers, while Convenience is becoming less of a priority. For example, 73% of respondents said that sustainability was important to them in sourcing foods. We therefore expect menus to change at restaurants, to reflect this change in demand. This will take the form of offering more information on ingredients, marketing meals as high in protein and stating the specific farm or location that ingredients were sourced from. This idea of farm-to-table allows restaurants to tell an origin story and results in consumer feeling more personally connected to the food, as well as trust it more from a food safety perspective. This will inevitably move beyond menus taking the form of hyper-local restaurants, where everything is grown and sourced on-site, or within a few miles.

Uptick In Sustainability Concerns In 2016

How much of an impact do the following have on your decision to buy foods and beverages?

Source: International Food Information Council Foundation, BMI

Aside from providing more information on menus, we also anticipate a change in the types of food being served, in order to better fit with these changing consumer preferences. 'Superfood' trends are becoming more popular, and restaurants will cater to this by including the likes of quinoa, kale and almonds, for example, in their dishes. Similarly, with vegetarianism and veganism accounting for a growing portion of the population, menus will move beyond simply having one or two dishes for these consumers but expand their range. In fact, one strategy will likely be entire menus which are vegetarian, but where meat can be added for an extra charge.

Finally, even though locally sourced food is a growing trend, consumers will continue their interest in sampling cuisines from other countries, experimenting with new flavours and meats. Niche products and recipes are therefore expected to be important over the coming year. We expect a greater focus on African cuisine, which has typically been marginalised compared to Asian or Middle Eastern dishes.

Local Food Brings Safety And Authenticity

Survey Question: How much do you trust each of the following?

Source: International Food Information Council Foundation, BMI

2. Technology Adoption Being Driven On Two Fronts

There are two driving forces behind increased levels of technology being used inside restaurants: increased costs for food services companies and consumer demand for convenience.

Increased costs for restaurants will largely take the form of rise in labour costs, as minimum wages rise across the US and other parts of the world. While the US federally mandated minimum wage has stayed the same at USD7.25 per hour since 2009, many states and cities have taken steps to boost this in 2017, with further increases scheduled over the coming years. Nineteen US states began the year with higher minimum wages, some as a result of ballot initiatives, while others came automatically as costs of living increased. The food services industry is particularly exposed to this trend and many companies highlight it as a major risk over the next few years.

This has led to increased investments in automation, as restaurants will be forced to cut back on staff or employee's working hours, as a result of these wage hikes. Most already have some form of online table booking system but we expect to see new technological innovations such as kiosks, tabletop tablets, as well as reducing table service in order to cut back on staff. These changes can help with efficiency, speeding up the dining process and ensuring that customers are served quicker, without waiting on servers. Adding payment options at the table and/or mobile payment technology such as Square can also help speed up these processes, allowing the restaurant to serve more people.

Federal Wage Stagnant But Raises At State Level

US Federal Minimum Wage (USD/hr)

Source: US Department of Labor, BMI

From the consumer side, these technological developments meet demand for convenience. While undoubtedly, large parts of the population prefer human interaction with waiters and waitresses, at quick-serve restaurants, the use of kiosks could reduce queueing times and make the experience easier. Other technology such as in-restaurant customer wi-fi are becoming more common, with the expectation, especially from millennial consumers that restaurants should have free guest internet services as a given.

Perhaps more important than the technology experience inside a restaurant is consumers ordering before they arrive. Mobile applications that allow pre-ordering are on the rise, although more so for coffee chains such as Starbucks and Dunkin' Donuts and other quick-serve restaurants. Starbucks introduced a mobile ordering app in 2016 and it was so popular that it had actually had the reverse effect, resulting in bottlenecking at pickup counters and hampering their calendar year 2016 sales.

Increasing Mobile App Penetration

Starbucks Rewards & Mobile Ordering Usage (%)

Source: Starbucks, BMI

Now that the company has adjusted its operations to deal with these bottlenecks, we expect to see strong growth in the use of its mobile ordering app, particularly given the high usage by Starbucks Rewards card holders. Starbucks is projecting its digital investments to increase by USD250mn in 2017, compared with USD160mn in 2016. Only 8% of Starbucks customers used the mobile app to order in its Q2 FY17 quarterly period ending March 2017, but since Reward cards can be connected to smartphones, this should show strong growth over the coming year.

We hold a particularly optimistic view for mobile pre-ordering services and expect it to be one of the more successful food services trends over the next five years.

3. Customisation As An Expression Of Individualism

In addition to restaurants selecting high quality, locally sourced ingredients, consumers want meals that are creative and designed for them. Customising specific aspects or even the entire meal is a fast growing segment of the food services industry, highlighted by fast casual restaurants. This includes brands such as Chipotle Mexican Grill, Panera Bread, Starbucks and Five Guys, which allow consumers to select from a mix of different variations in order to create a bespoke offering. Rather than settle on one specific choice, consumers will frequent the same establishment and experiment with different ingredients and flavours to create the meal that best fits them. These customisation offerings can help build loyalty, as it promotes a different experience every visit.

Some foods lend themselves more to this trend than others; pizzas, burgers, sandwiches, burritos, salads as well as tea and coffee, are some of the more prominent examples of these. However, with more consumers having particular dietary requirements, this trend is likely to permeate beyond these types of meals and fast casual restaurants to the wider sector, as consumers feel more comfortable asking for one item to be substituted for another. That these consumers are better educated about ingredients, preparation methods and food origin only adds to this demand for individually prepared meals.

Kiosks and mobile applications ordering processes lends themselves to customisation, as consumers can be more specific about what they want through special notes or just having an entire list of items in front of them. Digital platforms allow consumers to take their time in personalising their orders and feel more comfortable about doing so, whereas in-person there can be social pressure and a desire to make things easier on staff. While this customisation can put extra strain on employees, this is not something that can be resisted by restaurants, as consumers have come to expect that they will be catered for. Additionally, consumers are willing to pay more for the privilege of customisation, making it an equally attractive trend from the food services industry perspective.

Improving Sentiment In Food Services Industry

Restaurant Operators' Outlook for Sales Volume in Six Months Vs. Previous Year

Source: National Restaurant Association

4. Dining Out About The Experience, Not The Food

Many of the developments we've mentioned already feed into the idea of a more premium experience at restaurants, from higher quality ingredients to customisable menus using smartphones. However, BMI highlights the idea of other restaurant 'experiences' that don't necessarily revolve around the food itself, but other features such as the atmosphere and location. Again, much of this change is being driven by millennial consumers, who value 'experiences' over physical products and are willing to pay extra for them. This has led spending at food services and drinking establishments to surpass spending in grocery stores in April 2015, according to the US Census Bureau. Spending on food services has continued to push higher, indicating that food is declining in importance to the experience of actually dining out.

Consumers Spending More For 'Experiences'

Monthly Retail Sales (USDmn)

Source: US Census Bureau, BMI

For restaurants, this can take the form of design layouts, such as open kitchen or food prepared at the table. It can also mean fire-grilled, wood ovens or smoked as methods of food preparation. Themed venues, pop-up restaurants, entertainment and 'secret' locations also play into this trend, in order to make the experience memorable. A big part of this demand for experiences is capturing the occasion on social media to share with friends and followers, which can in turn create more buzz for restaurants. Presentation of food and drinks is perhaps more important than ever before, in order to ensure it is 'share worthy'. Cooking classes, restaurant meal kits and other on-site activities are all other examples of how restaurants will look to expand their own revenue streams, while creating unique experiences for their customers.

5. Uncertain Future For Delivery Companies

While there is plenty of buzz around self-driving cars and drone delivery, these trends are many years away and not on the radar for food services in 2017. What has become more relevant is the change in attitudes towards delivery from restaurants which previously would never have considered it. Traditionally, home delivery placed additional strain on kitchens for very little reward, with other expenses adding up to make it a tight margin business. We've seen this attitude change due to intermediaries such as GrubHub, UberEats, Deliveroo and Foodora, which have encouraged more restaurants to offer delivery services by outsourcing the delivery itself to these third-party companies. This reduces costs for restaurants and brings in extra revenue from delivery orders, which can also be charged at a higher price point.

Delivery Platforms Taken Off In Last Two Years

Worldwide Google Search Terms Interest

Source: Google Trends, BMI

There has been some consolidation in this space with GrubHub merging with Seamless in 2013, and also acquiring Boston-based DiningIn and California-based Restaurants on the Run in 2015. GrubHub is one of the largest food delivery services in the market but has seen new competition spring up in the past two years from UberEats and Postmates, for example.

Further consolidation is likely over the coming year, as there is crossover between the platforms and competition around pricing will inevitably occur, driving some investment down-rounds or others to exit the market. While the issue of tight margins has theoretically been solved for restaurants by these third-party delivery companies, the latter are still grappling with the economics of it. For example, the Better Business Bureau gives "F" ratings to Postmates, DoorDash, and Caviar, largely in response to their deceptive pricing strategies and added fees. We therefore expect a growing importance to be placed upon delivery companies to be able to not only offer unique restaurants compared to their competitors, in order to continue to attract consumers, but also to make their pricing models more transparent to ensure their restaurant clients remain signed up for their delivery services and that new eateries join their listings.